Alcoa 2010 Annual Report Download - page 116

Commercial Paper. Alcoa had no outstanding commercial paper at December 31, 2010 and 2009. In 2010 and 2009,
the average outstanding commercial paper was $166 and $418. Commercial paper matures at various times within one
year and had an annual weighted average interest rate of 0.7%, 3.1%, and 4.0% during 2010, 2009, and 2008,
respectively.
Alcoa maintains a Five-Year Revolving Credit Agreement, dated as of October 2, 2007 (the “Credit Agreement”), with
a syndicate of lenders and issuers named therein. The Credit Agreement provides for a senior unsecured revolving
credit facility (the “Credit Facility”), the proceeds of which are to be used to provide working capital or for other
general corporate purposes of Alcoa, including support of Alcoa’s commercial paper program. Subject to the terms and
conditions of the Credit Agreement, Alcoa may from time to time request increases in lender commitments under the
Credit Facility, not to exceed $500 in aggregate principal amount, and may also request the issuance of letters of credit,
subject to a letter of credit sub-limit of $500 under the Credit Facility. At December 31, 2010, the capacity of the
Credit Facility was $3,425 (original amount was $3,250). In October 2008, Lehman Commercial Paper Inc. (LCPI), a
lender under the Credit Agreement with $150 in commitments, filed for bankruptcy protection under Chapter 11 of the
United States Bankruptcy Code. It is not certain if LCPI will honor its obligations under the Credit Agreement. The
total capacity of the Credit Facility, excluding LCPI’s commitment, is $3,275.
The Credit Facility matures on October 2, 2012, unless extended or earlier terminated in accordance with the
provisions of the Credit Agreement. Alcoa may make two one-year extension requests during the term of the Credit
Facility, with any extension being subject to the lender consent requirements set forth in the Credit Agreement. In order
to maintain the Credit Facility, Alcoa pays a fee of 0.125% per annum, based on Alcoa’s long-term debt ratings as of
December 31, 2010, of the total commitment.
The Credit Facility is unsecured and amounts payable under it will rank pari passu with all other unsecured,
unsubordinated indebtedness of Alcoa. Borrowings under the Credit Facility may be denominated in U.S. dollars or
euros. Loans will bear interest at (i) a base rate or (ii) a rate equal to LIBOR plus an applicable margin based on the
credit ratings of Alcoa’s outstanding senior unsecured long-term debt. The applicable margin on LIBOR loans will be
0.475% per annum based on Alcoa’s long-term debt ratings as of December 31, 2010. Loans may be prepaid without
premium or penalty, subject to customary breakage costs.
The Credit Agreement includes the following covenants, among others, (a) a leverage ratio, (b) limitations on Alcoa’s
ability to incur liens securing indebtedness for borrowed money, (c) limitations on Alcoa’s ability to consummate a
merger, consolidation or sale of all or substantially all of its assets, and (d) limitations on Alcoa’s ability to change the
nature of its business.
The obligation of Alcoa to pay amounts outstanding under the Credit Facility may be accelerated upon the occurrence
of an “Event of Default” as defined in the Credit Agreement. Such Events of Default include, among others,
(a) Alcoa’s failure to pay the principal of, or interest on, borrowings under the Credit Facility, (b) any representation or
warranty of Alcoa in the Credit Agreement proving to be materially false or misleading, (c) Alcoa’s breach of any of its
covenants contained in the Credit Agreement, and (d) the bankruptcy or insolvency of Alcoa.
There were no amounts outstanding under the Credit Facility at December 31, 2010 and 2009. Also, no amounts were
borrowed under the Credit Facility during 2010 and 2009.
Short-Term Borrowings. At December 31, 2010 and 2009, Short-term borrowings were $92 and $176, respectively.
These amounts included $56 and $81 at December 31, 2010 and 2009, respectively, related to accounts payable
settlement arrangements with certain vendors and third-party intermediaries. These arrangements provide that, at the
vendor’s request, the third-party intermediary advances the amount of the scheduled payment to the vendor, less an
appropriate discount, before the scheduled payment date and Alcoa makes payment to the third-party intermediary on
the date stipulated in accordance with the commercial terms negotiated with its vendors. Alcoa records imputed interest
related to these arrangements as interest expense in the Statement of Consolidated Operations. The remaining amount
of short-term borrowings represents working capital loans at various subsidiaries.
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